RULE AGAINST PERPETUITIES

NO NO INTERESTINTEREST IS IS GOODGOOD UNLESS IT MUST UNLESS IT MUST VEST, IF VEST, IF AT ALL,AT ALL, NOT LATER THAN NOT LATER THAN 21 YEARS AFTER 21 YEARS AFTER SOME SOME LIFELIFE IN BEING AT THE IN BEING AT THE

CREATIONCREATION OF THE OF THE INTEREST-INTEREST-

John Chipman GrayJohn Chipman Gray

If, at the creation of a If, at the creation of a nonvestednonvested interest, there is some life in interest, there is some life in being within 21 years of whose being within 21 years of whose death the nonvested interest death the nonvested interest must must absolutely vest or failabsolutely vest or fail, the , the nonvested interest is good (valid).nonvested interest is good (valid).

If there is no such individual, the If there is no such individual, the

interest is bad (invalid)interest is bad (invalid)

Sheldon F. Sheldon F. KurtzKurtz

WHY HAVE THE WHY HAVE THE RULE?RULE?

What kind of What kind of interests are interests are NOTNOT

subject to the subject to the Rule?Rule?

• Indefeasibly vested Indefeasibly vested remaindersremainders

•Vested remainders subject Vested remainders subject to divestment to divestment if limited to an if limited to an individualindividual

–These are vested from the These are vested from the moment they are created.moment they are created.

What kind of What kind of

interests interests AREARE subject to the Rule?subject to the Rule?

•Contingent Contingent remaindersremainders

•Executory interestsExecutory interests

•Future interests in a Future interests in a class whether vested class whether vested or contingentor contingent

When is an interest

created under the rule?

•Lifetime transfers

–Irrevocable transfers

–Revocable transfers

Testamentary Transfers

Transfers resulting from exercise of power

–GPA (inter vivos)

–GPA (testamentary)

–SPA (inter vivos or testamentary)

How nonvested

interest vests under the rule

Remainders vest either:• By becoming vested, i.e, not be subject to a condition precedent

• Class closing and all conditions precedent occurring for each and every member of the class

Executory interests vest either:• In the case of shifting interests

by becoming vested remainders or becoming possessory

• In the case of springing interests by becoming possessory

The lives in The lives in being (Must be being (Must be Human Lives)Human Lives)

•Relevant lives

•Validating lives

Relevant Life:

A relevant life is a person who can affect whether or not the interest vest

Validating Life:

That relevant life or lives IF ANY within 21 years of whose death the interest is absolutely guaranteed to timely vest or fail to vest

An interest if valid if it must:

•vest or fail to vest during the lifetime of the validating life; or

•vest or fail to vest at the death of the validating life; or

•vest or fail to vest within 21 years of the death of the validating life, or

•vest or fail to vest within 21 years of the creation of the interest

A validating life cannot be amember of a class unless the class

is closed at the time that thenon vested interest is created

Steps in Doing a Perpetuity Analysis

•Determine when interests are created.

•Classify all interests•Determine which if any interests MIGHT violate the rule

•Determine if there is a relevant life

•Determine if there is a validating life

•Assess validity

In order to determine whether a disposition is “good” or “bad” under the Rule you must know:

• The language of the disposition

• Its construction (i.e, what do the words mean) or Construe First

Cont’d

•Facts about who survive at the time the nonvested interest is created (relevant and/or validating lives)

T devises property to A for life, then to A’s

children who attain age 21.

Good or Bad Under the Rule?Question: Is their a validating

life

T devises property to A for life, then to A’s

children who attain age 25.

Good or Bad Under the Rule?Hint: Is their a validating life

THE MIGHT HAVE BEEN

RULE(what might

happen)

T wills property to A for life, then to B if anyone returns from Rome

Scenario 1: At the time of T’s death, someone had already returned from Rome

Scenario 2: At T’s death, no one has yet returned from Rome. However, two weeks later C returns from Rome

Problems Pages 796-797• To A for life, then to B for life if any person

goes to Saturn• To A for life, then to A’s first child to pass the

bar– What does the phrase “first child” mean?

• Options– First child born to A and then only if he/she passes the bar

– First child of A whenever born who passes the bar

ASCERTAINING THE

MEASURING LIVES

T wills property to A for life, then to B if B attains age 75

T wills property to his wife for life, then 25 years after her death to such of his (T’s children)

as are then living

T wills property to A for life, then to A’s oldest surviving child for life, then to that child’s oldest child for life, then to B

• A, B and A’s son S survive T• A, B and no child of A survive T

FERTILE OCTOGENARIAN

Fertile Octogenarian• T devises property

to Trustee to pay income to A for life, then to A’s children for their lives, then to A’s grandchildren who are then living

• Scenario 1: At T’s death, A is living. A is age 80.

• Scenario 2: At T’s death, A is incapable of having children.

• Scenario 3: At T’s death, A’s children but not A are living

Problem 3, 800Problem 4, page 800

PRECOCIOUS TODDLER

Precocious Toddler• T by will to A for

life, remainder to such of A’s grandchildren who survive T or are born within 5 years of T’s death if they later reach the age of 25.

• Survived by child A but no children or grandchildren of A

• Survived by child A and 2 grandchildren and 3 children of A

• Survived by 2 grandchildren of A but not by A or any children of A

The Unborn Widow

See, Dickerson v. Union National Bank of Little Rock

• T devises property in trust to pay the income to Son for life, then to Son’s widow for her life, then to S’s then surviving issue. At T’s death:–Son and his wife, Jane survive T.– Is gift to issue good or bad under the rule?

• Could T’s will have been interpreted in such a way that it does not violate the Rule?

• If T’s will violates the rule, how might it have been drafted initially to be valid?

SLOTHFUL EXECUTOR

T wills the residue of T’s estate to T’s spouse to be paid to the spouse one year after T’s will is probated.

Alternative Contingencies

Doctrine

Gift to vest (by express words in instrument) on one of two events

One event could occur beyond permissible period (first event)

One event can only occur within permissible period (2nd event)

Gift VALID if second event is the one that ACTUALLY occurs

Gift VOID if first event is the one that ACTUALLY occurs

T devises property in trust to pay income to daughter A for life, then to A’s widower for his life, then, upon the death of the

widower, OR upon the death of A, if no spouse of A survives A, to A’s surviving issue

The All of Nothing Rule(Limited to -Class

Gifts)

If a gift is bad as to one member of a class, it is bad as to all, including those members of the class whose interest would timely vest or fail.

For a class gift to be valid under the Rule within the permissible period:

• the class must close

• and all conditions precedent must have to occur for EACH AND EVERY member of the class

• T wills property to A for life, then to such of A’s children as attain age 25. At T’s death

• #1: A has three children, all of whom are age 25.

• #2: A has three children, one of whom is age 25

• #3: A has three children, all of whom are under age 25

• T wills property to A for life, then to A’s grandchildren

At T’s death, A has:

• A has no grandchildren

• A has one living grandchild

• O deeds property to O’s daughter, A, for life, remainder to O’s grandchildren.

At the time of the conveyance, O has:

• No living grandchild

• One living grandchild

O deeds property to O for life, then to O’s grandchildren. At the time of the conveyance:

O has three living grandchildren and two living children.

O has no living grandchildren and two living children.

O has no living grandchildren or children.

Ward v. Van der Loeff

• What are the facts of this case?

• Is the gift in the will valid?

• Is the gift in the codicil valid?

Problems on Page 813

Infectious Invalidity

THE SUBCLASS EXCEPTIONAmerican Security & Trust Co. v.

CramerT wills property to A for life, then to

B for life, then to B’s surviving children for life, then upon the death of each child of B, the percentage share of the principal from which the child was receiving income shall be distributed to his/her surviving issue. At T’s death A, B and two children of B--C and D are living. Five years later, B has two more children--E and F

• Is the gift to A valid?• Is the gift to B valid?• Is the gift to B’s

children valid?• Is the gift to issue of

B’s children valid?

POWERS OF APPOINTMENT

When period begins to run:• General inter vivos power• General testamentary powers

• Special (non-general) powers

Is power validly created:

–Is it possible for power to be exercised by a person who was not a life in being and beyond the perpetuity period

Is power validly exercised:–Second look doctrine

•Rewrite appointment back into instrument creating power

•Consider facts relating to survivorship at time of exercise.

• T’s will: T wills property to A for life, remainder to such of A’s issue as A appoints by will, if no appointment to A’s grandchildren who attain age 21.

• Appointment by A: “to child (grandchild of T) B for life, then to B’s surviving issue”

Rewrite of T’s will: T wills property to “A for life, remainder to B for life, remainder to B’s surviving issue.”

B was alive at T’s death

B was born after T died

O conveys property to A for life, s/p/a/ issue as A appoints by will, ida to A’s children for life (grandchildren of O), then to A’s grandchildren (great-grandchildren of O). A dies and does not exercise the power.

At A’s death:• Grandchild B is living. B was also

alive when O created the trust• Grandchild B is living but was

born after the date O created the trust

• Grandchildren B, C and D are living:

• All were alive at the time of the conveyance

• All were born after the time of the conveyance

• B and C were alive at the time of the conveyance; D was born after the conveyance

Savings Clauses• Notwithstanding the foregoing any trust created

hereunder shall terminate, if it has not terminated sooner, no later than:– 21 years after the death of the survivors of all of my issue

living at the (time of my death) (date the trust created)– 21 years after the death of the survivors of all of my

grandparents’ issue living at the (time of my death) (date the trust created)

– 21 years after the death of the survivors of all of the descendants of Queen Victoria (or Joseph P. Kennedy) living at the (time of my death) (date the trust created)

Wait-and-See• A gift is valid under the rule if it actually

vests or fails to vest no later than 21 years after the death of the survivor of lives in being living at the creation of the nonvested interest.

• T wills property to A for life, then to A’s children who reach age 25.

• T wills property to the first child of A who graduates law school

• O wills property to O’s first grandchild who graduates from law school

• T wills property to the X Church so long as the premises are used for church purposes and if not so used, then to B.– 120 years after X Church ceases using the

premises for church purposes B’s estate claims the property.• Should B’s estate prevail if B is then living• Should B’s estate prevail if it can show that Z

is living (or died within the preceding 21 year period but Z was alive at the time of T’s death

CY PRES

T wills property to A for life, then to A’s children who attain age 25.

• At A’s death, A’s youngest child is age 18• At A’s death, A’s youngest child is age 3• At A’s death, A’s youngest child is age 1• At A’s death, A has no child under age 25

The Iowa ReformsIowa Code 558.68

States common law rule

– Adopts wait-and-see (Statutory List of Lives

• creator

• persons selected by creator

• living beneficiaries of present and future interests

• living grandparents of such beneficiaries

• living issue of such grandparents

• living grandparents and their issue who are objects of special power

• donee of special and general powers

– Cy pres

Charitable Trusts• Trust for benefit of recognized existing charity• Trust for a charitable purpose which include:

– Relief of poverty– Advancement of education– Advancement of religion– Promotion of health– Governmental or municipal services– Other purposes the accomplishment of which is beneficial

to the community

• Can last in perpetuity• The Cy Pres Doctrine

Goodbye and Thanks